Credit scores: Understanding your credit standing

A credit score is like your financial “report card” that is used by banks and lenders to help them decide whether you qualify for a loan or a credit card.

It shows how well you practice good financial habits including your loan payment history, your current debts, your available cash savings, among others. It also takes into account your financial behavior, such as paying off loans and credit card debt on time and in full.

It’s important that your credit score is good so that you have an easier time getting loans or applying for a new credit card. Generally, banks and other financial institutions are more willing to lend more money to people who have good credit scores.

What affects your credit score? While there are different factors to consider, the most important one is your payment history. Are you on time with your loan and credit card payments and do you pay them in full? Take note that even if you pay off your loan little by little, paying less than the minimum amount may still reflect on your credit score. This means that if your minimum loan payment is PHP 500 but you only pay PHP 499, you still run the risk of a lower credit score.

That is why financial experts recommend that you always pay your loans in full, all the time. Loans are useful financial tools, especially when you need a certain amount of money to supplement or augment your income.

It’s also a good idea to not borrow more than you need or max out your credit card and not be able to pay them in full. These things can affect your credit score.

The best way to maintain your credit score is to manage your payments through installments. Splitting your payments for expensive items is a good way to keep up with monthly payments while also following your monthly budget and keeping your credit score positive.